Collusive practices:Should there be consequences for directors of the construction firms involved?
26 August 2013
practices: Should there be consequences for the directors of the
construction firms involved?
Authored by: Ansie
Ramalho, CEO, Institute of Directors in Southern Africa (IoDSA)
The settlement reached between the
Competition Commission and 15 construction companies is yet another notch in
South Africa's tally stick in the fight against corruption. In terms of the
settlement agreements reached – likely to be confirmed by the Competitions
Tribunal – there will be serious consequences for those firms involved. This
gives rise to questions about whether the directors of these companies should
shoulder some of the blame for what has happened.
To my mind there are two pertinent factors to
consider on this matter.
The first is whether the director(s) had
known about the collusive or other anti-competitive practices. The
proposed amendments to the Competition Act which has yet to come in force and
which place directors and managers at risk of personal prosecution state this
risk in terms of directors and managers causing or knowingly acquiesce to a
firm engaging in a prohibited practice.
It is often assumed that directors must have
known about collusion but such a blanket assumption is probably underestimating
the complexity of the business environment. The difficulty for boards is that
anti-competitive practices often occur at levels of the business that directors
and especially non-executive directors have no direct contact with. The
collusive tendering that had taken place in the construction sector is a case
in point. Although the Competition Commission settlements were entered into
with the holding companies in the groups, in some instances it was actually the
subsidiary of a subsidiary company that was involved in the prohibited practice.
On the other hand, if there had indeed been knowledge of collusion, then
consequences should follow. A free market economy requires a level playing
field to operate effectively and we must enforce this vigorously.
In the event that there was no knowledge, the
second consideration is whether these directors ought to have known that there
had been collusive practices in their companies. This enquiry could also be
phrased as follows: had the directors done all that they could to put
themselves in a position of knowledge? This is a more nuanced question that
brings into focus the value of governance structures and processes that are
intended to prevent, detect and respond to non-compliance, including
anti-competitive practices. Having these in place will put boards in the
optimal position to defend against allegations of negligence.
For example: There needs to be a code of
conduct that provides very clear ground rules on the matter of anti-competitive
behaviour. Training programmes should be introduced as another preventative
measure. Periodic compliance assessments should be done and whistle-blowing
systems should be in place for detection purposes.
All this having been said, when considering
where to allocate responsibility for what has transpired in the construction
industry, the dry dictates of law and governance deal only partly with this
question. Ultimately, the law and governance are just the means to an end,
namely, a better world where ethical behaviour is the norm as opposed to the
news items on corruption that we are confronted with daily.
Archimedes said that with a lever and a place
to stand he would move the world. Directors should use the levers provided in
law and governance to move our world. However, the most burdensome task of
leadership can only be performed by leveraging from a place of responsibility
and accountability. Without standing firmly on this ground, legal and
governance provisions lose their power to move and directors become like
children with toy weapons.